The University of Tennessee’s research revealed that conventional transaction-based approaches have inherent flaws because the economics of the deal structure keeps buyers and suppliers at arm’s length. This type of approach is not conducive to collaboration, innovation or sharing value, especially for complex, multi-dimensional business relationships.

The table below provides a comparison of the main differences between a Vested relationship and a conventional relationship.

A key component to Vested is following the Five Rules in a structured process to ensure an optimized deal structure. The Five Rules are linked to Ten Elements designed to take practitioners through the Vested implementation process in a coherent, coordinated and systematic way from identifying the business, sharing the vision and stating intentions to managing and governing the enterprise.

It is one thing to create a team based upon an open relationship—it is another to structure the actual contract properly based upon rules aimed at eliminating non-value-added transactions. The Vested Outsourcing Manual provides a detailed how-to guide for creating a Vested Agreement.

The table below shows the linkage and interaction between the Rules and their Elements:

The first books in the Vested series laid out the Vested idea and methodology, along with the Five Rules and the 10 Elements practitioners can use to implement an effective Vested Agreement.

The fourth book, Vested: How P&G, McDonald’s and Microsoft Are Redefining Winning in Business Relationships, closely examines actual case histories of the Vested approach and mindset in practice, occurring right now in the real world. Vested goes behind the scenes of the best of the best business relationships, public and private, big and small, and reveals how the organizations involved follow Vested’s Five Rules. It provides an insider’s perspective on how these organizations are redefining the way to foster and nurture the long-term, win-win relationships required for our constant-change economy.

The University of Tennessee’s research is similar to what Jim Womack did in 1990 with Lean. Womack studied the Toyota Production System and other companies that were adopting the TPS philosophies. It was NOT new. However, the value he has brought to hundreds of companies is that he codified the TPS philosophies into layman’s terms and called it a cool name that resonated better with practitioners (“Lean” instead of “TPS”). It was Womack’s ability to bring sound concepts to practitioners that made Lean a popular concept. Prior to Womack’s book, The Machine that Changed the World, very few companies had heard of or were applying these concepts.

The value of UT’s work is that researchers went through the academic rigor to validate best practice with a theoretical foundation. From there, The University of Tennessee codified a set of rules and tools into a formal structured process to help companies achieve the best possible outsourcing deals.

Great business relationships can and do rely on these rules; they are NOT new. The problem is that today most companies do NOT follow these rules or the implementation process and, and as a result, suffer from many of the 10 Ailments outlined in chapter 3 of Vested Outsourcing: Five Rules That Will Transform Outsourcing.

Unfortunately, many organizations find it challenging to redefine what it means to “win” in today’s evolving and volatile business landscape. We often hear, “Nothing personal, but I have to focus on what’s in it for me. It’s just business.”

This outdated attitude reflects the shaky ground most business relationships are built upon–a zero-sum game where one party wins at the expense of the other. Yet in today’s rapidly evolving world, this mindset leads to rigid, us vs. them relationships that can’t withstand a market that demands constant change and adaptation.

The University of Tennessee’s research team studied highly successful outsourcing and supplier agreements that sought true “win-win” relationships that were built on highly collaborative and mutually defined outcomes. The research and fieldwork studying real-world success stories, featured in Vested: How P&G, McDonald’s and Microsoft Are Redefining Winning in Business Relationships, shows that companies can indeed find that elusive “win-win” by creating agreements that are designed to create and share value.

These partnerships achieved not only results, but transformational, game-changing, award-winning results. These relationships transcended traditional buy-sell transactions that focus on one party “winning” while the other “loses.” These parties worked together towards shared goals to drive innovation, create value and reward success. But while they seemed radical compared to most business relationships today, we realized that these companies were actually leveraging Nobel Prize-winning concepts—from Nash’s equilibrium theory to Williamson’s transaction cost economics.

Following the Vested business model allows organizations to achieve their own elusive win-win through highly collaborative efforts.

Yes. To date, we have over 80 public endorsements from industry experts including leaders of industry associations, executives from both outsourcing companies and service providers, consultants, analysts and academics.

Three of the most noteworthy endorsements come from the following industry pioneers:

Dawn Tiura Evans, President and CEO, Sourcing Interests Group: “Kate has hit the nail on the head. The ‘rules’, while often spoken about, have never been so clearly defined as they are here. The journey to a truly collaborative agreement is practically guaranteed if you follow the step-by-step process outlined in this great book.”

Frank Casale, CEO, Outsourcing Institute: “Vested Outsourcing is a game-changing approach that will quickly become the new gold standard for advanced outsourcing relationships. It is a critical enabler for Outsourcing 2.0.”

The Vested methodology relies on a collaborative, team-based relationship with a coach. Following the agreement-creating process drives the collaborative behaviors at critical touch points because the organizations work together to create the actual agreement.

However, some organizations find they are not ready for various reasons; not having key stakeholders on board is a primary one. In this case, we suggest adopting the five-step process outlined in the book Getting to We: Negotiating Agreements for Highly Collaborative Relationships. This process, when applied, will help lay the foundation for collaboration. While this will fall short of a Vested Agreement, it does establish the critical steps to help parties adopt Vested’s “What’s In It For We” (WIIFWe) mindset.

No. It quickly became clear that the new rules for achieving remarkable business relationships were not only applicable to outsourcing relationships, but to all types of relationships. Our focus then shifted to codifying the “rules” of the successful relationships we’d studied and creating a framework for Vested agreements that any businesses could adopt.

A good example covered in Vested: How P&G, McDonald’s and Microsoft Are Redefining Winning in Business Relationships is the story of the non-profit non-governmental organization (NGO) Water for People, which helps people in developing countries improve their quality of life by supporting the development of locally sustainable drinking water resources, sanitation facilities and hygiene education programs. Water for People is changing the paradigm of a traditional charity by creating sustainable and transformational change with Vested relationships with NGOs and local communities to solve water poverty issues in some of the most remote parts of the world.

Suppliers are just like people: they have their own personalities. For example, some are more naturally inclined to innovate than others. The important thing to consider is that both the buyer and supplier are similar in terms of their compatibility and overall trust levels.

Some suppliers are better suited to certain buyers. Where one supplier may be a better Vested candidate with a particular buyer, another buyer may be better-suited-for another supplier for a Vested approach. The Compatibility and Trust Assessment evaluates the critical aspects of a buyer-supplier relationship to determine the ‘fit’ between buyers and suppliers using well-researched and proven components of a business “personality” and Vested relationship. The CaT brings the essential elements of business relationships and the tenets of Vested relationships, evaluated across five main dimensions, into a scientifically evaluated model using the two-world view to determine the best Vested relationship approach. This is based on the specific buyer and specific supplier and their mutual relationship as evaluated by critical relationship dimensions.

That’s a great question and one that occurs with some frequency. A company hears about Vested and wonders whether it’s right for them. We often say the Vested business model, which in a nutshell buys outcomes rather than paying for transactions, is not necessarily suited for every outsourcing arrangement. A quick litmus test is to ask if your processes are already optimized and if you are already achieving peak performance at the lowest cost. If the answer is yes to both, then you likely do not need to spend the effort to forge a Vested relationship. Simply put, the purpose of a good Vested deal is to create a long-term view aimed at finding the “Pony.” If you have already found the Pony, don’t do Vested.

Simply because a company can adopt the Vested model for just about anything it might outsource, that does not mean that it should. Some activities should be outsourced conventionally. For example, office supply purchases are not strategically critical for most firms. A Vested model is hard and takes time; it should be done only in the areas that will have the largest impact or return for the company.

Companies can evaluate their outsourcing opportunities using the above chart. If there is high value and expertise to continue to manage a process within the company, do not outsource those activities. However, if there is low expertise but high value, that activity is a good target for a Vested Agreement. Conventional outsourcing is best used when contracts do not add strategic value to operations. Look for opportunities to decrease cost, increase availability and thus increase customer satisfaction. If the Vested approach looks promising for an activity, don’t ask, “What’s In It For Me?” but rather, “What’s In It For We?” to be successful.

Deciding to shift to a Vested relationship depends greatly on two factors: 1) whether there is a need and potential to create value and drive innovation; and 2) the level of dependency that is required in the relationship (for example, the high cost of switching service providers: a company that is simply buying a pure commodity where there is not potential to create value should use a transaction-based business model.

We have a great white paper done in conjunction with the Sourcing Interests Group on this very topic, “Unpacking Sourcing Business Models – 21st Century Solutions for Sourcing Services.”

It is a free download from the Vested library and is a great resource for deciding which sourcing business model is the best fit for your company. Vested’s Centers of Excellence also offer a Business Model Mapping workshop to help companies map various “commodities” they are buying against the Business Model Map.

It depends. Best practices are the results of the parties coming together to solve a particular problem, or to drive innovation and apply the right solution to the right business need that ultimately will create a competitive advantage. This cannot be determined in advance. The process itself strives to find what we call the “Pony,” which is the quantified difference in value between today’s current process and the future, optimized process.

Let’s take P&G for example. In this Manufacturers Alliance for Productivity and Innovation (MAPI) webinar Matt McClish, P&G’s North American Leader for the Global Asset Recovery team and the former Group Manager and Outsourcing Deal Manager responsible for Global Facilities and Real Estate, speaks about how P&G was already “best in class” when it came to industry benchmarks for facilities and real estate management. By outsourcing to Jones Lang LaSalle, P&G was able to merge the companies’ core competencies and further create value for each party. In essence, they defined new best practices.

A simple statement from William Reeves, P&G Director to Bill Thummel, Chief Operating Officer – Corporate Solutions at JLL, sums up why determining future best practices is often uncertain. After Jones Lang LaSalle won the RFP to manage P&G’s facilities and real estate management efforts worldwide, Reeves shook hands with Thummel to symbolically seal the deal, stating, “We know that you (JLL) and the other suppliers we evaluated have never done this before, and neither have we. But JLL has the culture that is much like P&G’s. We think we have the best chance of being successful with you because you are so much like us.”

We recommend that the Core Team include at least two members from each organization involved in the Vested Agreement. Larger and more complex projects should consider adding additional resources to key stakeholders communities. A core team should grow in size according to the complexity of what is being sourced. Typically, a core team is never larger than six individuals from each organization involved in the relationship.

Most organizations also create an “extended team” comprised of subject matter experts that work on a particular component or aspect of the agreement (e.g. finance folks are typically assigned to work on a pricing model). For more information about how to structure your implementation resources, refer to the Creating a Vested Agreement, Module 2.

The first time an organization sets out to create a Vested Agreement is often the most difficult.

Two tips:

Follow the process. You might think taking a “class” is not helpful. However, the Creating a Vested Agreement course offers a proven step-by-step process for helping you stay on track and not skip vital steps, decisions or deliverables. The course is designed to be taken together—with both (or all!) partners learning and doing together. If you work through the deliverables together, you will find the process itself has created an environment that fosters collaboration.

Use a Vested Center of Excellence to support you in your journey, especially if you are following the methodology for the first time. Centers of Excellence are trained to provide neutral, third-party support for “deal teams” as they embark on their Vested journey. They also can provide expert advice and examples they have seen in action, if you find yourself getting stuck.

One of the biggest mistakes is to not ensure you have buy-in to move forward with your Vested journey. Ask yourself if you are “ready.” You can get a good sense check by reading chapter 1 in The Vested Outsourcing Manual and reviewing Module 9 in the Five Rules online course. If you are unsure, a Vested Center of Excellence can perform a “readiness assessment” for your organization.

As you embark on your Vested journey, we highly recommend organizations spend plenty of time on the “Getting Ready” Module in the Creating a Vested Agreement online course and that they do not proceed until they are “ready.” For example, the parties should determine their “guardrails” early. We find companies that do not do this often get to the pricing model—or worse—signing of the contract only to find that one or more stakeholders will not agree to the Vested deal because it is not within their risk/reward tolerance (e.g. “I can’t agree to a seven-year contract — our corporate policy is three years”).

The answer is “it depends.” We have seen organizations take as little as two months and as much as two years. Let’s use Dell as an example (see chapter 12 in the 2nd edition of Vested Outsourcing: Five Rules that will Transform Outsourcing). It took Dell two years to get past Step 1 (Lay the Foundation) where they had to set the stage to get the key stakeholders on board and get Genco’s agreement to move forward. Once the key stakeholders were on board, Dell and Genco took approximately four months to complete their Vested Agreement after they started the online Creating a Vested Agreement course.

Once a company has the commitment from key stakeholders, it typically takes companies four to seven months to complete the work needed to get to a Vested agreement using the Vested tools and methods. The general rule of thumb is larger or more complex relationships take longer.

One business unit vs. multiple business units in scope. (e.g. A pharmaceutical company did a supply chain agreement that encompasses five different business units, combining the scope of work for each of these business units under one Vested agreement with the supplier).

A Vested Center of Excellence is a great resource to help you determine the path/implementation plan for your situation. In many cases, organizations choose to “pilot” Vested in a limited scope area to get familiar with the changes they need to make and then roll it out to a broader area. We find “pilots” are a very effective way to begin your Vested journey

No, we do not have a “Vested Lite” process. You will need to follow the methodology and agree on and implement all 10 of the Vested Elements to be considered Vested. Skipping any steps / Elements will likely mean your relationship will suffer from one or more of the 10 Ailments.

We do understand that in many cases an organization does have constraints and cannot adopt all 10 of the Vested Elements. In this case, we recommend you consider your relationship as being a Vested “journey.” Adopt the Elements you can do now, and then seek to adopt the other Elements as you have time or constraints are lifted. At a minimum, we recommend that an organization follow the five-step Getting to We process, which will ensure you are laying a proper foundation for your relationship. In doing so, you will complete Element 2 (shared vision/statement of intent) and Element 7 (Relationship Management Framework) and thus inject good governance into your agreement and relationship. By starting with the Getting to We process, you will lay a strong foundation for your relationship and over time you can address each of the additional 10 Elements of a Vested Agreement on your Vested journey.

You can use the Manual by itself without using the online course. However the benefit of the online course is that it provides a comprehensive implementation toolkit. In addition, The Vested Outsourcing Manual was published before the case studies were made publicly available. The online class provides rich examples from the case studies.

Also, following the online course is a great way to provide structure for your Vested journey. Many companies choose to take one module of the online course per week, which allows the organizations to get in a rhythm for implementation of “learn and do.”

Lastly, people learn differently. Some enjoy reading the book, and others prefer to have the content delivered in smaller bits “just in time” to their project plan.

You do not have to take the courses in a particular order. While we do recommend taking the 3-Day Vested Outsourcing Executive Education course prior to working on a Vested implementation, it is not required. If you have an agreement you need to start working on right away, you and your service provider should take the Creating a Vested Agreement online course. The course is available on demand and you can start anytime, anywhere in the world. The online course walks you through a step-by-step approach for creating a Vested Agreement. It also contains a comprehensive toolkit that can help guide you through the decisions and deliverables you will need to create as part of your agreement.

We recommend augmenting the Creating a Vested Agreement course by working with a Vested Center of Excellence where a Certified Deal Architect can assist with the project you are working now.

For reference, completing a Vested agreement typically takes 4-6 months, so you can easily begin with the online courseware and end with the University of Tennessee onsite courses if you wish to pursue your CDA. (AE and DM)

First, it is gratifying to see more and more companies embrace the Vested concept. That said, the case studies in Vested about McDonald’s and Procter & Gamble are exceptional.

Story #1
Most of us know about the McDonald’s “secret sauce” that makes its Big Mac so tasty. But even more important is that in this book, we reveal the real secret sauce—known as the “System”—that company founder Ray Kroc perfected to build long-term transparent relationships as the basis for long-term success. This secret sauce is based on the firm belief that everyone in the McDonald’s System comprises a three-legged stool—employees, owner/operators and suppliers—and that as such, they all can and should win together.

Kroc established a precedent of trust, loyalty and collaboration throughout the company, believing that if the restaurant owner/operators, McDonald’s employees and suppliers were successful, success would come to him as well. Simply put, McDonald’s, its owner/operators and its suppliers have a Vested interest in helping each other succeed. The stool is only as strong as its three legs; for one leg to prosper, each leg must prosper. This means that the company employees, the franchise owner/operators and the suppliers each support McDonald’s equally.

Those are inherently Vested concepts, of course, but remember that Kroc developed this way of thinking and operating in the 1950s. And even more amazing, nearly all of McDonald’s supplier relationships are based on handshake deals that have stood the test of time.

To this day, McDonald’s lives the philosophy that, as Kroc famously said some 50 years ago, “None of us is as good as all of us.” Kroc was doing it the Vested way before many of us were born—that’s why the McDonald’s story is so inspirational to me and one of my favorites.

Story #2
Another favorite from Vested is the P&G story. The company’s groundbreaking contract with Jones Lang LaSalle in 2003 flipped the conventional approach to outsourcing on its head. P&G created a business model based on contracting for transformation instead of contracting for day-to-day transactions. A.G. Lafley had taken the helm in 2000 as P&G’s CEO to lead the organization into the twenty-first century, and innovation became a priority under his stewardship. He questioned the sustainability of the “in-house, invent-it-ourselves” model, betting that looking beyond P&G’s walls could produce more highly profitable innovations that would drive value for both P&G and the parties bringing innovation to P&G.

This thinking required changing the “not invented here” mindset to enthusiasm for those ideas “proudly found elsewhere.” By 2003, P&G began extending this thinking to how it worked with its suppliers. P&G believed that by working with world class outsource service providers, it could drive costs lower and ensure that service offerings remain on the leading edge of best practice. P&G deployed a Vested approach when it penned a pioneering outsourcing contract with JLL spanning 60 countries that included facility management, project management and strategic occupancy services. The scope and complexity of the deal was a first for both companies, as was the approach of the commercial contract.

The two companies created a commercial agreement that was highly Vested in nature, collaborative in approach and transformational in thinking. Under their agreement, P&G created an outsourcing relationship that challenged JLL to not just take care of its buildings, but to take charge of its buildings.

The P&G and McDonald’s stories embody the transformational nature that visionary leaders can bring to business relationships.

It is difficult to pick only one, but if pressed I usually choose the Department of Energy’s closure and massive environmental cleanup of the Rocky Flats Nuclear Production site. It showed the art of the possible in the face of seemingly impossible odds. The project was successfully completed 65 years ahead of schedule and almost $30 billion under budget. (See the Vested case study “Vested For Success: How the Dept. of Energy and CH2M-Hill Transformed a Plutonium Site to Prairie Land.”)

I’d be remiss not to also mention the Vested journey of RelianceCM and its President Scott Schroeder as another favorite. It’s a great example of a small company that achieved huge success by adopting Vested principles and the WIIFWe mindset.

As you can see, Vested’s Five Rules is a one-size-fits-all approach because the methodology allows organizations big and small to benefit from a Vested approach.

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